By Fabio Benedetti-Valentini and Sandrine Rastello
Oct. 21 (Bloomberg) -- France's investment in its six biggest banks brings to at least $128 billion the amount European governments are pouring into financial institutions as the U.S. prepares to carry out a similar plan to unlock lending.
France will purchase subordinated debt from banks including BNP Paribas SA and Societe Generale SA to help shore up capital, Finance Minister Christine Lagarde said at a press conference in Paris yesterday. In exchange, the banks will have to boost lending to companies and consumers, she said.
European governments have led the U.S. in efforts to recapitalize banks and thaw credit markets. Britain, France, Germany, Spain and the Netherlands are among countries that pledged more than 2 trillion euros ($2.65 trillion) to guarantee bank loans and take stakes in lenders. U.S. Treasury Secretary Henry Paulson, who at first rejected calls to invest directly in financial companies, plans to spend $250 billion buying equity in banks.
Leaders in Europe ``were a lot earlier than in the U.S. to understand that banks needed more capital to help solve the liquidity side of the equation,'' said Jonathan Tyce, a London- based analyst at Fox-Pitt Kelton. ``It is an evolution and the approaches are becoming more tailored to the banks' needs.''
BNP Paribas, Societe Generale and Credit Agricole SA rose in Paris trading after Lagarde announced her 10.5 billion-euro plan. BNP Paribas, France's biggest bank, advanced 7.7 percent to 59.12 euros by 12:33 p.m., while Societe Generale climbed 9.5 percent to 48.12 euros. Credit Agricole gained 12 percent to 11.69 euros.
Swedish banks, including SEB AB and Swedbank, also rallied after the government pledged as much as 1.5 trillion kronor ($205 billion) yesterday to guarantee loans and created a fund that may buy shares in banks.
Capital Outpaces Losses
European financial institutions have raised about $266.5 billion from investors and governments since the credit crisis began last year, more than the $228 billion of credit losses and writedowns they reported, data compiled by Bloomberg show. In the U.S., capital raisings still trail writedowns, the figures show.
In addition to France's three largest publicly traded banks, the government will invest in customer-owned Credit Mutuel, Caisse d'Epargne and Banque Populaire. The funds will boost the banks' shareholder equity and increase solvency ratios without being dilutive for shareholders, said France's central bank. The purchases are part of the 360 billion-euro state rescue package France announced last week.
``It's a balanced approach,'' said Gilles Moec, an economist at Bank of America Corp. in London. ``The government wants to avoid a contraction in the French credit markets at all costs. The banks now have more than enough to protect themselves from the risks that have paralyzed them since the summer.''
Helping the Economy
Like governments in London and Berlin, French President Nicolas Sarkozy is attaching strings to the capital injection. U.K. Prime Minister Gordon Brown has demanded banks offer help to homeowners struggling to pay mortgages and accept government- appointed board members. German Chancellor Angela Merkel insists on ``state influence'' over management decisions.
``The goal of this operation isn't to recapitalize those banks that need it but to support financing for the economy,'' said Christian Noyer, European Central Bank governing council member and governor of the Bank of France.
Credit Agricole, which operates France's largest consumer- banking network, will sell 3 billion euros of subordinated debt, BNP Paribas 2.55 billion euros and Societe Generale 1.7 billion euros. Caisse d'Epargne and Banque Populaire will sell 1.1 billion euros and 950 million euros of debt respectively. Credit Mutuel will issue 1.2 billion euros of debt.
`Not a Gift'
``The state is not giving a gift to the banks,'' Lagarde said. ``The pricing of these securities will be based on available market references. They will generate substantial revenue for the state.''
The French actions follow efforts across Europe. The Dutch government bought local units of Fortis and ABN Amro Holding NV for 16.8 billion euros. Zurich-based UBS AG agreed to sell a stake of 6 billion Swiss francs ($5.2 billion) to the government and split off as much as $60 billion of risky assets into a fund backed by the central bank.
The U.K.'s Royal Bank of Scotland Group Plc may sell as much as 20 billion pounds of stock to the government unless investors agree to buy shares. On Oct. 19, the Netherlands said ING Groep NV, the biggest Dutch financial-services firm, will get 10 billion euros after it warned of its first quarterly loss.
In the U.S., Paulson allocated an initial $125 billion to nine of the largest banks, including Citigroup Inc. and Morgan Stanley, and now plans to inject $125 billion into other lenders, using funds from a $700 billion bailout package to buy the non-voting preferred equity stakes.
French Growth Slowing
Lagarde said yesterday that French growth in 2009 will probably fall short of the government's 1 percent forecast as the financial and economic crisis limits any expansion. French statistics institute Insee estimates the euro region's second- largest economy slipped into a recession in the third quarter.
The growth in lending to the private sector slowed to 10.2 percent in August from a year earlier, compared with 12 percent just two months before, according to Bank of France statistics. In another central bank survey, more than half of the banks said they would tighten lending criteria in the third quarter.
The French government last week said it will set up two entities, one that will lend up to 320 billion euros to banks and another that will spend as much as 40 billion euros to take equity stakes in banks, if needed. The measures, designed to restore liquidity to financial markets, were part of a plan agreed by the 15 countries that use the euro.
To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net.
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